US-China trade feud likely to persist for years

U.S. President Donald Trump and Chinese President Xi Jinping

By Lee Kyung-min

• Published Dec 28, 2018 8:04 AM KST
• Updated Dec 28, 2018 8:04 AM KST

By Lee Kyung-min

Korea should brace for a renewal of deepening trade tension between the United States and China in 2019 as it is likely to persist for years, according to economists, Thursday.

Korea is especially vulnerable, as it is a small, open economy with heavy reliance on external shipments. More importantly, the country has no control over the feud between the two economic giants.

The economists expect the ongoing trade tension will continue without any clear end in sight, given the hegemony-oriented nature of the power struggle between the world's two largest economies. “The conflict will continue for an extended period of time, because it is not about a mere trade deficit, and much more about the dispute over technology, goods and services for generations to come,” said Park Chong-hoon, a chief economist at SC First Bank.

“While the two sides will remain non-confrontational for the time being, the issue will continue for a long time given it is an overarching policy directive of the U.S. government.”

U.S. President Donald Trump and Chinese leader Xi Jinping agreed to a temporary truce on the trade war Dec. 1, in a dramatic ceasefire that broke the then much escalating tension.

The U.S. warned that it would raise tariffs to 25 percent up from 10 percent on $200 billion worth of Chinese goods citing a growing trade imbalance.

The two, according to the White House statement, also agreed to begin negotiations on forced technology transfer, non-tariff barriers, intellectual property and cyber theft, Trump's biggest complaints, and major concerns Park cited that will largely dictate prosperity of the two economies.

While both sides agreed to complete negotiations within 90 days with plans to impose the raised rate to 25 percent, no clear deadline has been set. According to Oh Suk-tae, an economist at Societe Generale, the ambiguous agreement will eventually fall through, with the U.S. imposing the 25 percent tariffs on the said amount of Chinese goods.

“The 90-day truce has not produced any concrete details since U.S. President Trump announced the plan saying the imposition would take effect Jan. 1. The dispute will continue for at least a few years and a couple more for a full and complete resolution,” Oh said.

Neither side will budge in what now has developed into a full-fledged power struggle, said Lee Chae-woong, a professor emeritus of economics at Sungkyunkwan University.

“The two in the short term may seek a truce, which can and will inevitably break into a heated feud at any given moment as neither side would give in and outright admit that it lost when the whole world is watching. China obviously has more to lose, but the U.S. is fatigued just as much,” Lee said.

Ryu Deock-hyun, an economics professor at Chung-Ang University, said the two will find a way that involves neither confrontation nor concession.

The conflict will move from import tariffs to export bans, according to Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis Global Market Research.

“This is already happening for Hong Kong as the U.S. is rethinking its exemption on Hong Kong for high-tech exports. In addition, we could also see additional weaponization of sanctions by the U.S. beyond the current case with Huawei. This will restrict the operations of Chinese companies in countries that are considered clear U.S. allies,” she said.